Those brave souls that read my blog and/or my twitter stream know that international trade is a subject that interests me a lot.
It is no secret that Argentina is a country
that its affairs are accompanied by some kind of constant clatter since it
evokes quite different feelings to different people. In my humble opinion it’s
a rather beautiful country that on the other hand has a long history of
economic mismanagement.
The most clatter was generated by the country’s
sovereign default in December 2001. One can find a number of different
narratives regarding the catalysts behind this but the standard one is that the country's currency board arrangement led to a
significant loss of competitiveness and that this competitiveness issue was resolved by the massive
devaluation that occurred simultaneously with the default.
The fact that a devaluing currency boosts
international competitiveness is a standard axiom in international economics
but was this true in the case of Argentina?
The answer, if one actually bothers to look at
relevant data is categorically, no. In fact, Argentinean exports performed much
better during the 1991 – 2001 period that the currency was pegged than during
the following decade.
 |
| source: World Bank, own calculations |
Of course this doesn’t stop people from tossing
currency devaluation around as a cure-all.
 |
| source: World Bank, own claculations |
If one looks carefully to the chart above
showing the USD/ARS exchange rate (unfortunately I couldn’t find NEER data for
Argentina) he/she can see that during the 00s too, Argentinean exports also
performed better during the years that the currency was quasi-pegged to the
dollar than during the years after a renewed and massive devaluation cycle
started. What’s more during the years of the massive and constant devaluation
exports (in volume terms) have decreased.
In my humble opinion, there is nothing wise
about conventional wisdom and consensus is usually wrong. So maybe, just maybe,
policy-makers and policy-proponents can start focusing on facts and not on
doctrines proposed by first-year economics textbooks.
